Executive Summary: Centralization Risk in Crypto: How Decentralized Is Crypto?
In this article, I explore centralization risks across crypto like concentrated mining and infrastructure bottlenecks, risks in major assets like Bitcoin and Ethereum, and centralization concerns in layer-ones and DeFi.
Summary:
Centralization risks exist across crypto assets and infrastructure like concentrated mining, hosting providers, and motivations, which can enable censorship, but risks can be mitigated through decentralization efforts.
What is centralization in crypto:
- Choke points in tech stack like limited ISPs, concentrated miners.
- Can lead to censorship of transactions at protocol or infrastructure levels.
Types of centralization risks:
- Governance, consensus, motivational, topological, network.
- Can create ripple effects across industry.
Centralization risks in Ethereum:
- Consensus centralization with staking providers.
- MEV centralization and block censorship concerns.
- Centralized client and node hosting reliance.
Centralization risks in Bitcoin:
- Mining power concentrated in few pools.
- Geographic centralization of mining in US and China.
- Traffic concentrated across few ISPs.
Centralization risks in other chains and DeFi:
- Governance control and security vulnerabilities.
- Hardware requirements disadvantage smaller players.
- Centralized entities can override contracts.
Mitigating centralization:
- Recognize essential roles but mitigate side effects.
- Ongoing decentralization efforts by communities.
Full article:
Centralization Risk in Crypto: How Decentralized Is Crypto? | CoinMarketCap
Explore the complexities of centralization in the crypto industry and its risks in assets like Ethereum, Bitcoin, popular layer-ones and DeFi.
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